Ford, GM to cut production in first quarter

A tacit admission automakers are building more than they can sell

After posting disappointing sales in November, Ford Motor Co. and General Motors Corp. announced first-quarter production cuts yesterday.

GM's sales declined nearly 17 percent to 300,000 vehicles last month. The largest automaker said it would trim production 7 percent in the first quarter, to 1.25 million cars and light trucks.

GM will close five plants for at least a week in early January, including four truck plants, and GM market analyst Paul Ballew hinted more temporary closings could follow.

"We're still trying to get our arms fully around our first-quarter plan," Ballew said. "This is just our current estimate."

Ford's sales fell 7.4 percent, the sixth straight month of year-to-year decline. The No. 2 manufacturer said it would build 930,000 vehicles in the first quarter of 2005, 8 percent less than this year.

Ford attributed most of the 78,000-vehicle reduction to the closing of a plant in Edison, N.J., this year that built the Ranger compact pickup and a previously announced elimination of one shift at the St. Louis plant that builds the Ford Explorer.

Peter Langlois, an analyst with Ernst & Young, said the production cuts are a tacit admission that GM and Ford were building more cars than they could sell even with hefty incentives.

By contrast, strong sales of new models such as the Chrysler 300 and Dodge Durango lifted sales 4.5 percent at the Chrysler Group, the U.S. unit of DaimlerChrysler AG.

For the year, Chrysler's sales are up 3 percent to 2 million vehicles, Ford's are down 5 percent to 3 million. GM is off 1 percent to 4.2 million.

Results were mixed for the industry. Nissan North America led major manufacturers with a 26 percent increase to 80,376 vehicles, and Toyota Motor Sales U.S.A. was up 4 percent.

American Honda was down 1 percent, and BMW fell 4 percent.

Double-digit swings in monthly sales are common in the industry, but GM's sales last month were its lowest since January, the worst month for new vehicle sales.

Langlois said GM's full-size SUVs, such as the Chevrolet Suburban and Tahoe and GMC Yukon, are near the end of their product cycle and losing favor with buyers. Sales of those models were down 32 percent.

"It's their big trucks," he said. "They're being superseded by the newer products out there."

GM finished the month with 1.27 million vehicles in inventory, slightly higher than its year-end goal. GM has traditionally been the most generous with incentives, averaging more than $4,900 per vehicle last month, according to CNW Marketing Research.

Automakers do not disclose their incentive levels, but Ballew said GM's were $400 lower in November than the previous month and slightly lower than a year ago.

GM's latest incentive twist, called Lock and Roll, guarantees consumers can lock in the same interest rate on a new vehicle they buy today and on a second vehicle they buy down the road.

Ballew said about 5 percent of consumers took the offer in November and indicated GM will unveil new offers to boost sales this month.

When CNW surveyed consumers about Lock and Roll, Cadillac owners were the most interested among current GM owners.

"That's because they understand it," CNW President Art Spinella said. "They know that interest rates are going to go up. The catch is that Cadillac owners are more likely to lease than buy vehicles, and Lock and Roll applies only to purchases.

"They kind of missed the mark," Spinella said.

Langlois says Lock and Roll is a head-scratcher compared with previous GM offers, such as zero-percent financing for 72 months, which boosted showroom traffic in September.

"It's not as easy or as quick to grasp when you see it on television," he said.

GM hopes that new vehicles due in 2005 will boost sales, but Langlois says GM has painted itself into a corner with its non-stop discounts.